25 - Canadian Taxation Flashcards

0
Q

What is the max # of weeks in a corporate fiscal year?

A

53

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1
Q

Which two provinces collect income taxes rather than the federal gov? (On whom?)

A

Quebec: individuals & corporations
Alberta: corporations

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2
Q

What are the four steps calculating income tax?

A
  1. Calc all sources of income
  2. Make allowable deductions
  3. Calc gross/basic tax payable
  4. Claim tax credits (if any) and calc net tax payable
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3
Q

What are the four types of income and how are they taxed?

A
  1. Employment: gross receipt basis
  2. Cap Property: interest or dividends
  3. Business: net-income
  4. Cap Gain/Loss: net gain (half taxed)
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4
Q

When are taxes charged on zero-coupon bonds or index-linked GICs?

A

Annually, even though no income is received until maturity

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5
Q

How are dividends taxed?

A
  1. Grossed up by 45% (taxable amt)
  2. Taxed at marginal rate
  3. Dividend tax credit: Subtract 19% (of taxable amt)
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6
Q

How are dividends from foreign corporations taxed?

A

Taxed as regular income. Use foreign tax credits: lesser of foreign tax payed OR Canadian income tax payable.

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7
Q

What 5 carrying charges are tax deductible?

A
  1. Interest paid on funds borrowed to earn investment income
  2. Fees for investment advice
  3. Fees for mgmt/admin of invstmts
  4. Safety deposit box charges
  5. Accounting fees for recording invstmnt income
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8
Q

What 5 charges cannot be deducted from investment income?

A
  1. Interest paid on funds borrowed for cap gains
  2. Brokerage fees or commissions to buy/sell securities
  3. Interest paid on funds borrowed to contrib to an RRSP/TFSA/etc
  4. Admin fees for RRSP or RRIF accts
  5. Fees paid for financial planning
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9
Q

A taxpayer may deduct interest paid on funds borrowed to buy securities if…?

A
  1. Legal oblig to pay interest
  2. Purpose is to earn income
  3. Income is not tax exempt
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10
Q

When might be cap gains be treated as ordinary income? (6)

A

CRA says it’s speculative

  1. Short periods of ownership
  2. History of buy/sell or quick turnover
  3. Spec knowlg of securities mkts
  4. Substantial time spent investigating the market
  5. Using lots of margin or debt
  6. Nature of shares (speculative, non-dividend)
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11
Q

How is the adjusted cost base calculated for identical shares?

A

Average cost method (add together all costs and divide by # of shares)

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12
Q

How is the adjusted cost base of convertible securities calculated (and when is the cap gain/loss calculated)?

A

The ACB is based on the original securities (e.g. Buy 1 for $100 and split into 10 common shares, means $10 ACB). Cap gain/loss at time of sale (not at conversion).

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13
Q

What are the three taxation scenarios for Rights & Warrants?

A
  1. Direct purchase: same as convertible securities
  2. From direct share ownership: cost of orig shares must be adjusted. If sold at profit, cost was $0.
  3. When not exercised: if purchased, cap loss. If not purchased then no gain/loss.
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14
Q

How is accrued interest on a debt security taxed?

A

The seller: counts it as interest income in the year of sale

The buyer: deducts it from their interest income in the year of sale

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15
Q

What must a taxpayer do to declare a capital loss if a security becomes worthlesss?

A

Fill out a CRA form, unless it was an expired security (right/warrant).

If it was due to bankruptcy, disposed for $0 and reacquired for $0.

16
Q

What is a superficial loss and when is it used in tax calculations?

A

When a security is sold at a loss but (re)purchased within 30 days of the sale and still held 30 days after the sale. (Can be added to the cost of the repurchased shares when selling later)

17
Q

What is the Alternate Minimum Tax?

A

Alternative tax calc for taxpayers who make a lot of deductions or tax-preferred income (must pay the higher tax of either: regular calc or alternate calc).

18
Q

What is the max income that can be contributed to a retirement plan in a year?

A

Lesser of 18% of income earned or RRSP dollar limit for the year.

19
Q

What is a Past Service Pension Adjustment?

A

The diff between an old plan’s Pension Adjustment and the new one’s (when pension plan is upgraded).

20
Q

With Money Purchase Plans (MPP) (aka DCP), what is the max contribution in a year?

A

Lesser of 18% of employee’s current year compensation, and MPP contribution limit (indexed annually to inflation)

21
Q

What is the max pension contrib limit for DBP based on?

A

So that pension is a max of 2% of pre-retirement earnings per year of service.

22
Q

What are the two types of RRSP?

A

Single Vendor Plans

Self-Directed Plans

23
Q

When can/must an RRSP holder withdraw or deregister their plan?

A

Can withdraw or dereg at any time, but MUST dereg during the calendar year that the plan holder reaches age 71.

24
Q

What options does an RRSP holder have when they MUST deregister their plan?

A
  1. Withdraw as lump sum (fully taxable in that year)
  2. Purchase a life annuity, fixed term annuity or
  3. Transfer to an RRIF

(Or a combo of these)

25
Q

What are 5 advantages of RRSPs?

A
  1. Reduction in taxable income during high tax years
  2. Shelter of certain lump sum types of income from taxation
  3. Accumulation of funds for the future (tax-free earnings)
  4. Deferral of income tax until later (lower tax bracket)
  5. Opportunity to split retirement income (spousal RRSP) could mean less tax
26
Q

What are 4 disadvantages of RRSPs?

A
  1. Withdrawals are taxed as income (not cap gains)
  2. Cannot get dividend tax credit
  3. If plan holder dies, proceeds are taxed as income (unless xfer to Spouse or dependents)
  4. Cannot be used as loan collateral
27
Q

What is the min/max that must/can be withdrawn from an RRIF?

A

Min is based on a table to provide income until death, no max.

28
Q

How are annuities taxed (incl if they are purchased with $ from an RRSP)?

A

Interest portion is taxed as income; unless purchased from RRSP, then both interest and capital portion are taxed.

29
Q

Who sells deferred annuities?

A

Life insurance companies

30
Q

What is the max contrib amount and period for an RESP?

A

$50k max lifetime limit per beneficiary

Contribute up to 31 years, but must be collapsed within 35 years of start date.

31
Q

When the contributor to an RESP (not beneficiary) withdraw income? When must the plan then be terminated?

A

Plan existed more than 10 years, and none of beneficiaries have started qualified post-2ndary by age 21 (or all beneficiaries have died). — must terminate plan by Feb of following year —

32
Q

How much can an RESP contributor transfer to their RRSP (and when)?

A

$50k max if they have contrib room, and only if beneficiaries do not attend qualified programs.

33
Q

What is a Canada Education Savings Grant and what is the max contribution amount per year & lifetime that will be made?

A

Fed gov matches 20% of the first $2500 contributed each year to the RESP of a child under 18. Max of $7200 lifetime (must be repaid if child does not go to qualifying school)

34
Q

What is the max amount one can contribute to a DB pension plan?

A

Lesser of:

  1. 9% of compensation
  2. $1000 + 70% of PA
35
Q

What is the “additional” CESG amount the gov provides? (If any)

A

If family income under $41,544: 20% on first $500 ($100 max)

Between $41,544-$83,088 then: 10% on first $500 ($50 max)